Farm Credit Agency Rescues Omaha Branch

August 27, 1985|By Christopher Drew.

The Farm Credit Administration on Monday approved an internal $340 million rescue of a troubled Omaha affiliate amid growing concern that a much larger government bailout will be needed to save the entire system.

The rescue package, proposed last month in response to the rapid deterioration in the farm economy, calls for the rest of the banks in the quasi-federal system to pump $75 million into the Omaha unit by next Monday and to provide an extra $25 million later, if needed.

It also calls for the other banks to buy $240 million of the Omaha unit`s ``high-risk assets``--mostly bad loans--later this year or early next year. The purchase would be made through the Farm Credit System Capital Corp., another unit set up earlier this year to help bail out the system`s Spokane, Wash., affiliate.

In return for the help, the Omaha unit, called the Federal Intermediate Credit Bank of Omaha, would charge off $95 million in bad loans. It also would funnel about $50 million of its own money to its most troubled production credit associations, or lending branches.

System officials said Monday that the cash infusion would stabilize the district`s problems, but they also reiterated earlier warnings that a continued decline in the farm economy could force them to seek government help.

``We have always said that if things deteriorate dramatically, perhaps the system will have to go for assistance,`` said Jane Hamburger, a vice president for the system`s main funding unit.

``At this time, obviously, contingency plans to do that are being explored, but we have no reason to do it now,`` she said.

Several farm economists, however, said the expected huge harvest this fall is likely to drive grain prices and farmland values down further and add to the pressures on the system.

``I see a continued downward slide on the part of the system,`` said Neil Harl, an economics professor at Iowa State University.

Reagan administration officials also foresee the need for a government bailout.

Late last week, Robert Thompson, the assistant agriculture secretary for economics, said the administration was studying options ranging from buying stock in the credit system to forming an even larger financing agency to buy up bad debt and subsidize interest rates for troubled farmers.

As a prerequisite to any federal bailout, he said, system officials would have to solve as much of the problems as possible themselves. He said they also would have to agree to greater regulatory control--a prospect that upsets many system officials.

Through its 12-district network, the Farm Credit System carries about $74 billion in loans, about one-third of the nation`s farm debt.

Each district has an arm that makes long-term loans for farmland purchases and one that makes shorter-term operating loans, through a network of production credit associations.

The intermediate-credit bank in Omaha holds about $1.6 billion in loans to farmers in Nebraska, Iowa, Wyoming and South Dakota.